Taxability of interest earned on EPF -new amendment

Earlier, interest earned on EPF contributions was completely exempt. But with the new amendment w.e.f 01.04.2022, certain portion of interest income is being taxed in the hands of employees. let us understand in detail.

WHAT IS TAXED?

Interest accrued on contribution made to EPF by employer and employee during the financial year over and above the threshold limits is taxed in the hands of employee.

WHAT IS THE THRESHOLD LIMIT?

For the interest income to be taxed, Finance Ministry has mentioned threshold limits as below.

If employer does not contribute to PF - Rs.500000

If both employer and employee contributes to PF - Rs.250000

HEAD OF INCOME:

the taxable portion of interest will be taxed under the head "INCOME FROM OTHER SOURCES".

TDS ON TAXABLE INTEREST:

If the taxable interest exceeds Rs.5000 per annum, then EPFO will deduct TDS @10% u/s234A.

However, the taxable interest income will appear in 26AS/AIS and hence, the employee has to include this income while filing the return whether or not TDS is deducted.

Note: Please note that entire interest is not taxed. Interest earned on the part of contribution exceeding the threshold limit is alone taxable.

Now, EPF account will show the taxable and non-taxable balances in the UAN login.

EXAMPLE: 

To understand the concept easily,
let us look into a situation where both employer and employee contributes to PF.

In this context, Rs.3040 will be taxed in the hands of employee and since the taxable interest income is less than Rs.5000, there will be no TDS.